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Investors are banking on Nigeria’s financial sector

Article - October 2, 2013
With steady annual growth of between 6 and 7 percent predicted for the next five years, Nigeria looks set to overtake South Africa and become Africa’s largest economy as early as 2014

Nigeria is the second most attractive destination for investment on the continent behind BRICS member South Africa, and has jumped a staggering 35 places to 38th on the worldwide ranking in Rand Merchant Bank’s annual ‘Where to Invest in Africa: A Guide a Corporate Investment’ report.

Nigeria is looking to diversify its economy from an oil sector that generates about 80 percent of government revenue and 90 percent of its foreign exchange reserves (of which it currently holds around $46bn). One of the main drivers of non-oil growth has been the banking and finance sector, which has been reformed and reinvigorated following the crash of 2008.

The West African nation’s banks will be key to driving growth in the real sector as it provides the capital and finance for large-scale projects and medium-sized enterprises, down to micro-financing for the growing number micro-businesses and dynamic entrepreneurs in the country. Progress since the financial implosion in 2008 has been impressive; the banking industry is now thriving again with most of the country’s banks recording healthy profits last year. 

The main protagonist of the recent banking success story is governor of Nigeria’s central bank, Lamido Sanusi. His hard-line and decisive actions in 2009 in response to the banking crisis led to London-based magazine The Banker naming him ‘Central Governor of the Year’ in 2010. Most noteworthy of his actions were the dismissal of the heads of eight banks (some of whom even faced criminal charges), the establishment of the state-owned Asset Management Corporation of Nigeria (AMCON), and the injection of 620 billion naira (£2.4 billion) into beleaguered banks.

Four years on and Nigeria’s publicly-traded banks are expecting year-on-year profit increases of 20 percent for the next three years. The Nigerian Stock Exchange Banking 10 Index has increased 19 percent so far this year and expanded 24 percent in 2012. 

The future looks bright for the country’s insurers also. The insurance market is forecasted to triple in value by 2017, from 300 billion to one trillion naira, which will make up three percent of GDP (up from the current one percent). There is a certain distrust of insurance companies amongst Nigerians. However, like Governor Sanusi at the central bank, the Insurance Commissioner Daniel Fola has done much to change the culture within the industry by making sure insurance companies follow the rules, subsequently improving the reputation of the industry in the eyes of Nigerian people.

Fola forecasted in June that penetration should increase to 22.5 percent of the insurable population in four years from the 10 percent currently. Bloomberg’s Nigerian Stock Exchange Insurance Index, which is made up of the ten most liquid insurers, yielded 30.42 percent after it closed at 154.53 points at the end of Q1 this year. 

With a thriving economy and a cleansed finance sector that is unrecognizable to the one that existed in the run up to the financial crash, it is no wonder that investors are bullish and that foreign participation has doubled in the Nigeria’s banking industry since 2008. 

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